German industrial production numbers disappoint again

Good morning,

• Markets primed for correction following strong week;

• FOMC minutes may hint at earlier rate hike;

• German industrial production numbers disappoint again;

• Quiet US session expected following chaotic week.

The week has got off to a slightly negative start following the long weekend in the US. In truth, the weakness being seen this morning is probably more a case of profit taking than anything else, despite the numbers from Germany this morning being far from encouraging.

We saw plenty to be optimistic about from the US last week, particularly from the jobs report on Thursday which showed 288,000 jobs being added and the unemployment rate falling to 6.1% in June. This was the first time since 2001 that we’ve had five consecutive months of more than 200,000 jobs being added and the lowest the unemployment rate has been since October 2008.

That is unlikely to be enough to convince the Fed to hike interest rates any earlier than the middle of next year, or that appears to be what the markets believe given that these numbers were not met with a response typically associated with hike fears. The Fed minutes, which will be released on Wednesday, could shed more light on the current stance on rates, although it is worth noting that this meeting took place almost two weeks before Thursday’s jobs report. That said, should more members highlight the improvement in the data recently and even hint at an earlier rate hike, it could weigh quite heavily on sentiment.

Following such a manic week in the markets, this week is expected to start a little slower, with the number of economic data releases being significantly reduced. The only notable release this morning has been the German industrial production number, which showed a 1.8% decline in May, while the April figure was revised lower to -0.3%, marking a third consecutive decline. While this is concerning, especially as the decline this month was driven by falling orders both domestically and externally, I do expect things to pick up in the coming months and clearly so do other investors as the DAX is still trading near all-time highs.

The US session is looking very quiet from an economic data perspective, with no numbers scheduled for release. This isn’t necessarily a bad thing, given the amount of data we saw last week. We saw a good reaction to much of the data last week and this period of calm may allow for a necessary correction.

Ahead of the opening bell, the S&P is seen 3 points lower, the Dow 28 points lower and the Nasdaq 3 points lower.